An advisory panel of the Securities and Exchange Board of India (SEBI), India’s securities market watchdog, has recommended stricter definitions of mutual funds. The implementation of these proposed changes may reduce the total number of fund schemes available in India by as much as 50%. A final decision regarding this advisory panel recommendation is expected by the end of September at the latest. According to sources familiar with the recommendation, SEBI would attempt to ensure that each fund house i.e. AMC (asset management company) offers only a single fund in each category. If SEBI does implement the advisory panel recommendation, only 10 types of equity and debt funds each along with 3 or 4 types of balanced funds would remain available in the market.
At present, there are 42 fund houses operating in India and among them, these AMCs offer over 2000 separate funds to individual investors. At present, selecting specific funds from this huge list is nothing short of selecting a handful of stocks from a stock exchange listing featuring 2000 companies. The reduction in number of schemes available to the investor is expected to reduce confusion and aid the decision making process of the individual investor.
As per current rules, SEBI mandates that AMCs provide two key bits of information as part of its mandatory nomenclature requirements. Firstly, whether the fund is open ended or close ended and secondly, whether the fund is equity or debt oriented. As per the new recommendations, the name of the scheme would be required to reflect the nature of its investment portfolio. In case a fund does not conform with the stated requirement, the AMC will no longer be able to offer the fund to its investors. The AMC will have two options in such a situation – either merge the fund with another or shut it down completely.